mobile 2.0 and profits: proximity marketing to the rescue

A while back we wrote an article (pdf) in which we pointed out that, by retaining user data on their Internet servers, mobile web 2.0 companies are not making any profit. In the excerpt below “Unlocking the Tapestry“, we were purposely controversial – enjoy it ;-). Still, the question of how mobile web 2.0 companies will make money is open to debate. The conventional answer is that those companies may capitalize on electronic ads. How to spread ads in a distributed way? Companies such as HyperTag and BlueMedia are already offering proximity marketing solutions (delicious). Another good reason to decentralize web 2.0 services!

All of the above location-based services are already offered on the Internet. Websites collect content generated by registered users and add “geotags” to that content (i.e., encode spatial co-ordinates). Ironically, location-based content that is collected in such a distributed way finds itself “enclosed” on the Internet – a centralized and location-independent infrastructure. One may well ask why. Here is a possible explanation: by channeling user-generated content into their web sites, companies attempt to make money. Take Google: it “is often compared to Microsoft; but its evolution is actually closer to that of the banking industry” (TheEconomist, 2007). According to this widely shared view, Google is similar to a bank that capitalizes not on our money but on our personal data. Consequently, giving up data for Google would be tantamount to giving up profits – money coming from advertisers who exploit personal information to promote their wares in a targeted way. However, most Web 2.0 companies are struggling to find viable business models, and they are not making any profit because they are pursing Starbucks’ business model. Starbucks offers comfy chairs and does not charge people for sitting on them; people will buy overpriced coffee instead. “By offering a setting for free interaction, such sites provide the online equivalent of comfy chairs. The trouble is that, so far, there is no equivalent of the overpriced coffee that brings in the money and pays the bills” (TheEconomist, 2006). In theory, advertisements may generate profits. In practice, they have been found to annoy and drive people away. Since Web 2.0 companies do not know how to make money, they are trying to get ideas from (the crowd of) external programmers. They let programmers access part of their user-generated data through APIs. Unfortunately, most of those companies may be doomed to failure because they:

Offer unscalable services. The urban tapestry will be measured in petabytes of data, and Internet services will not scale simply because processing and exchanging data at this scale requires an infrastructure well beyond the means of the Internet.

Need to keep switching costs high. As users are free to switch from one service to another, companies have little financial incentive to reduce switching costs. So data is often stored in proprietary file formats (protected by patents) and protected by service vendors. Giving access to their data via APIs is a first good step towards more open and innovative solutions. However, with company-defined APIs, the amount of accessible data is typically only a tiny part of the company’s knowledge base, so that the “wisdom of the (programming) crowds” is only partially exploited: unplanned innovation is serendipitous in nature and APIs are not open enough to accommodate it.

To sort out this current impasse, one may turn to managing location-based content using highly decentralised and open solutions which are more likely to:

Eliminate switching costs – Users may be empowered to retain control of their data by simply storing it on their devices. To make that happen, MIT have recently put forward “A World Wide Web Without Walls” (W5) proposal: a project “that imagines a very different Web ecosystem, in which users retain control of their data and developers can justify their existence without hoarding that data”. In so doing, one eliminates switching costs – users do not need to share their data with each service provider. Plus, this approach comes with a pleasant by-product for privacy-conscious users: they would have control over what data they are willing to disclose.

Scale – While existing companies fight over their “one size fits all” search engines, new companies may offer customized search solutions for communities in particular locations. That is made possible by two recent communication technologies: the first is Bluetooth, which connects only people who are in proximity; the second is WiFi, which connects mobile users to the Internet and enables the storage of location-relevant content on hotspots. These two technologies can assure dissemination and availability of location-dependent information. Assuring the availability of electronic data is a problem of scientific importance, and Ross Anderson has masterfully explored it in “The Eternity Service” (Anderson, 1996).

That is not to say that we stand at a crossroads. We do not need to decide whether to either lock the digital tapestry on the Internet or fully distribute it across portable devices. The future may well reside somewhere in the middle, and that “somewhere” will change depending on what technologies will be available. The introduction of new technologies largely depends on research. Since past research has focused on Internet solutions, it is time to study solutions that are distributed, and potentially mobile.

This entry was posted on Friday, November 14th, 2008 at 2:41 pm and is filed under industry, mobile, web 2.0. You can follow any responses to this entry through the RSS 2.0 feed.
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5 Responses to “mobile 2.0 and profits: proximity marketing to the rescue”

Hi, i’m Walter and i’m working with the proximity marketing!
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Search it on YOUTUBE: WAYMEDIA OR MOBITOUCE CUBE and you can discover all the new features…

[...] Few months ago, I wrote a piece for a W3C meeting (more on the meeting here) . In my piece, I pointed out that Google is the only company making money from ads, and the remaining web 2.0 companies are struggling to find viable business models, and they are not making any profit because they are pursing Starbucks’ business model (full article, excerpt). [...]

[...] Few months ago, I wrote a post on “Why Free Isn’t the Future of Business” and concluded that: Google is the only company making money from ads, and the remaining web 2.0 companies are struggling to find viable business models, and they are not making any profit because they are pursing Starbucks’ business model (full article, excerpt) [...]

Looking at this post ovr 18 months on it’s clear that Google’s stance on location based marketing is even more prevelant. Take a look at any Google results now where you’re looking for a “service” + “locatin” and you’ll be given location based results dependent on where the service you require is from.

With the push of Bluetooth content to mobile phones is a prime example of location based advertising; pin pointing people in specific locations (sometimes by age too – think cinema/activity centre) this brings a new dimension to the opportunities that location based advertising can have.